I recently became self-employed. How do I estimate my taxes for quarterly payments?

Question

I work as an independent consultant providing advisory services. My pay is gross with no deductions for advisory services to my clients in my consulting business.

Specific questions are:
1) Where do I remit the employer/employee portion of Social Security and Medicare?
2) What forms do I use? 1040ES seems to lack worksheets for deducting expenses for self-employed persons.

Answer 1

1. you include ss and medicare with you estimate. Just add it in.

2. Use Schedule C to arrive at what you expect your gross to be. It includes places to subtract expenses. Use Schedule SE for SS and medi. You can down load the forms from the IRS site. Don't forget to deduct your medical insurance and contributions to your retirement accounts. Both are fully deductible.

http://www.irs.gov/formspubs/lists/0,,id=97817,00.html

Answer 2

You will need to pay estimated taxes quarterly unless you had no tax liability for last year. Form 1040-ES and Publication 505 of the IRS have all the forms you will need. This will include your SS and Medicare payments. If you are likely to receive your income in uneven amounts throughout the year, consider using annualized estimated payments; this will allow you to better match your payments with your income.

Also take a look at your deductions at this time. If you will itemize your deductions when preparing your return at the beginning of next year, you can use those estimated deductions to reduce your estimated liability throughout this year.

Answer 3

To answer your two specific questions:

1) As a self-employed person, your FICA (social security) and Medicare are paid along with your income tax. When you file your taxes, you'll report your gross income (the amount you were paid) on Schedule C of your 1040. You'll also report your expenses related to this business, such as cell phone, supplies, travel/mileage, and perhaps home office expense if you;re eligible for it. The gross income less your expenses is your net income. "Self employment tax" (FICA/Medicare) of 15.3% is calculated on the net income, and is carried over to your Form 1040 and added to any income tax due.

2) For Form 1040-ES, you'll have to make an educated guess as to how much you'll make this year from self-employment and how much your expenses will be. Your estimated net income (gross pay minus expenses) will be the amount you'll use for the worksheets.

Keep good records! When you prepare your tax return (or have someone prepare it), you'll want to know what you spent and how much mileage you drove. This will save you money.

Answer 4

Use the 1040ES package. Here's a link: http://www.irs.gov/pub/irs-pdf/f1040es.pdf It includes all of the worksheets that you need to estimate your tax payments. Just use your estimated net profit on line 1 of the worksheet, you can figure your gross income and expenses on a separate sheet of paper.

Send the payment vouchers to the appropriate address shown on page 6.

Answer 5

my husband uses the 1040 long form and follows the directoins to use the attached additional forms for such things as you asked about in question 2. he downloads them off the IRS site and prints them out. He estimated 20% for taxes and has all kinds of deductions. He usually buys a new printer, saves every reciept for every single thing he purchases, and even makes it a point to buy something for the business that we can't get locally every time we take a road trip so the whole trip can be counted as a business trip. every little bit helps and it all adds up in the end. the more deductions, the less taxable income. good luck!!!

Answer 6

Fill out a Schedule C with what you anticipate will be your gross income and expenses. Then look at your net income.
You will pay about 15% of that in SS and Medicare, plus income tax. If you are in the 15% tax bracket, then 30% of your net will go to taxes.

Send in 1/4 of that amount each quarter. Income taxes and SS and Medicare are all paid together. You should be close to breaking even when you do your taxes for 2007.

IRS Publication 505 has detailed worksheets.

http://www.irs.gov/pub/irs-pdf/p505.pdf

Answer 7

Don't try to guess. The IRS is no joke. They do come after people. Why risk it? I would find a CPA and have your first few years of taxes done professionally. What you'll pay in fines is way more than what an accountant will charge. Once you completely understand what has to be done and feel comfortable filing it yourself, then do it.

Answer 8

when you receive your tax booklets in the mail, read them, study them, ask questions online.
I keep record of everything...mileage, and expenses.
I fill out a schedule A, SE, and C.
I ask alot of questions.
It is really not that hard, just time consuming.

Answer 9

Get a good accountant

Answer 10

Work one full year...Pay the taxes due...The next year pay your estimates on that basis.